Valuations are growth-based

Updated: Dec 31 2006, 06:45am hrs

We are into a phase of economic evolution where the size and quality of the opportunity is large. The economy should see high growth on the back of its three engines. These are investments in infrastructure building, increasing domestic consumption and favourable demographics and outsourcing opportunities.

The growth trajectory for the economy is robust, quality accretive and sustainable in the long-term.

The major contributors are the services and manufacturing sectors.

With increased participation by the private players leading to high efficiency in logistics the agricultural sector will join the party too by deriving benefits of better price realisations.

Purely benchmarking the markets with the past will not allow us to visualise the big picture of the future. It would be akin to driving a car looking at the rear view mirror instead of the front windshield. The valuations need to be seen in the perspective of high qualitative growth and more importantly sustainable growth to participate with conviction.

Investors will do well to understand that the short-term cyclicality in the markets is part and parcel of the long-term goal of wealth creation. The only strategy for wealth creation in such strong phases of growth is to remain invested for the entire period rather than time the market.

Concern factors

As such, there are the usual concern factors of interest rates, high level of oil prices and finally, of course, the geo-political risks which always exist. However, in the current context these are manageable risks.